Saudi Aramco Scales Back Oil Production Amid Hormuz Crisis and Iran's Retaliation

Saudi Arabia's state oil giant, Saudi Aramco, has begun reducing crude production at two of its oilfields as escalating conflict in the Gulf disrupts tanker traffic through the Strait of Hormuz, according to sources cited by Reuters on Monday.

The move comes just hours before Aramco is set to report its 2025 earnings on Tuesday, placing the spotlight on whether the world's largest oil exporter can maintain supply flows as the intensifying U.S.–Israeli war with Iran begins to choke off the region's energy logistics.

Sources said the production curbs were triggered by mounting export bottlenecks as tanker traffic through the strategic waterway slows sharply. Military activity, rising security risks, and insurance cancellations have made shipping increasingly difficult, creating a backlog of crude across the Gulf.

It remains unclear which specific fields were affected or how large the production cuts are. Aramco has not publicly commented on the reductions.

The disruption marks one of the clearest signs yet that instability around the Strait of Hormuz—normally responsible for roughly a fifth of global oil and liquefied natural gas flows—is beginning to constrain supply from the region's key exporters.

In response, Saudi Arabia has accelerated efforts to reroute crude shipments through its East-West pipeline network, sending barrels to the Red Sea export terminal at Yanbu in an attempt to bypass the Gulf chokepoint. However, analysts say the pipeline system cannot fully replace the massive volumes that typically move through Hormuz, leaving storage tanks filling rapidly.

Other Gulf producers are facing similar constraints.

Crude output from Iraq's southern oilfields has dropped by roughly 70% since the war began, falling to about 1.3 million barrels per day from around 4.3 million previously, according to officials. With storage capacity nearly exhausted, the remaining output is largely being redirected to domestic refineries.

Shipping activity has slowed dramatically as well. On Sunday, only two tankers were loaded at Iraq's southern export terminals, each carrying roughly 2 million barrels, and both vessels remained in the Persian Gulf based on vessel-tracking data.

Across the region, energy companies have taken emergency measures. Kuwait has begun shutting in production and declared force majeure on some shipments. Qatar halted liquefied natural gas production at its massive Ras Laffan export hub following drone strikes and also declared force majeure. Meanwhile, the Abu Dhabi National Oil Company has reduced offshore output, and Bahrain's Bapco Energies has taken similar emergency steps.

The unprecedented disruption has rattled global energy markets, sending Brent Crude futures close to $120 per barrel, their highest level since mid-2022.

At the same time, geopolitical tensions are escalating beyond the energy sector. Saudi Arabia issued a sharp warning to Iran on Monday, saying Tehran would be the "biggest loser" if attacks on Arab states continue.

The warning followed a drone strike that reportedly targeted the massive Shaybah Oil Field in eastern Saudi Arabia. Riyadh also rejected claims by Iranian President Masoud Pezeshkian that Iran had halted attacks on Gulf countries, saying the statement had not been reflected in reality.

"The Iranian side has not implemented this statement in practice," Saudi Arabia's foreign ministry said, accusing Tehran of continuing its aggression based on "flimsy pretexts devoid of any factual basis."

The deteriorating security environment has also prompted the United States to take precautionary steps. The U.S. State Department issued an emergency order directing non-essential diplomatic staff and family members to leave Saudi Arabia.

The evacuation order came the same day the U.S. military confirmed that an American service member had died from injuries sustained during an Iranian attack on the kingdom, underscoring the rapidly widening risks as the conflict spreads across the region.